CMS: Health Care Spending To Double By 2016

Increases in spending on prescription drugs will moderate, but they still will contribute heavily to 6.9% average annual growth in U.S. health expenditures over the ...

By Staff Writer|February 21, 2007 at 12:32 PM

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Increases in spending on prescription drugs will moderate, but they still will contribute heavily to 6.9% average annual growth in U.S. health expenditures over the coming decade.

Economists and actuaries in the Office of the Actuary at the Centers for Medicare and Medicaid Services are making that prediction in a paper published in the Web edition of Health Affairs, a scientific journal that focuses on the delivery and financing of health care.

The research team, led by John Poisal, deputy director at the CMS national health statistics group, is estimating that overall national health expenditures will increase an average of 6.9% from 2006 to 2016, compared with an average annual increase of 4.9% in U.S. gross domestic product.

The increase, which will amount to 6.1% per year per capita, will push total national health expenditures to $4.1 trillion, or 19.6% of GDP, in 2016, up from $2.1 trillion, or 16% of GDP, in 2006, the researchers estimate.

The researchers include a figure for the “net cost of private health insurance”–health insurance premiums minus expenditures on medical claims–in a category that includes health program administration and the net cost of health coverage. Spending in that category will increase about 6.8% per year, the researchers estimate. That category will account for about $296 billion in expenditures, or 7.1% of national health expenditures, in 2016, down from 7.4% in 2006, the researchers predict.

The spread of high-deductible health plans could have a “modest negative effect” on growth in private health spending, and, excluding the effects of the Medicare Part D prescription drug program, average premiums per private health insurance enrollee probably rose just 6% in 2006, down from 6.5% in 2005, the researchers write.

The effects of the traditional “underwriting cycle” on growth in net health insurance costs may be milder than in the past, because private health insurers now appear to have the ability to obtain and analyze trend data more quickly and adjust premiums accordingly, the researchers write.

In general, as the population ages, “private health spending is expected to slow in response to slowing projected income growth,” the researchers write.

Most growth in health expenditures will come from Medicare and Medicaid, the researchers add.

“Other personal health care” expenditures, a category that includes military health programs, could be the fastest growing major health expenditure category. The CMS researchers are predicting that category will grow 9.7% over the coming decade to account for $159 billion in expenditures, or 3.8% of overall national health expenditures, in 2016, up from 2.9% in 2006.

The average annual increase in prescription drug spending will fall to about 8.6% per year, from an average of about 14% per year in recent years, because of factors such as shifts to insurance plan designs that encourage patients to use generic drugs. But because prescription drug spending is a big category, and the spending growth rate will continue to be faster than the overall national health expenditure growth rate, drugs will continue to be a major driver of health spending expansion, the CMS researchers predict.

The CMS researchers expect prescription drug spending to account for about $497 billion in expenditures, or 12% of national health expenditures, in 2016, up from 10% in 2006.

Categories in which the CMS researchers expect average annual spending increases to be less than 6% include nondurable medical products, durable medical equipment, nursing home care, dental services and research.

Most other categories, such as hospital care and physician services, will grow about 6% to 7.5% per year, CMS researchers predict.

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